Monday, November 11, 2013

How to buy dividend stocks with as little as $10

Update 1/7/2016: The credit card option is no longer available. You can only purchase shares using your linked checking account.

Many Americans use credit cards for a lot of their everyday purchases. In fact, many Americans have a problem with too much plastic. As a result, people in the US save a very small amount of their incomes. At the same time, a lot of individuals have a problem with debt.

On the other scale, you have beginning dividend investors, who cannot put more than a few hundred dollars per month in quality dividend stocks. Many investors are put off investing, because they believe they need a lot of money to start investing. With commissions at even the best brokers run anywhere between $5 - $10 per transaction, many investors rightly know that they need a lot of money coming each month before they can consider investing in dividend paying stocks. They are somewhat right, since a $5 commission on a $200 investment is equivalent to 2.50%, which is prohibitively high. A $10 commission on a $200 investment corresponds to an even worse 5%.

The options for this investor are to either purchase commission free ETF’s or mutual funds, use dividend reinvestment plans (DRIPs) or find a low or zero commission way to acquire stock. When I was first starting out, the best broker for me was Zecco, because it provided free trades every month. Now unfortunately there are almost no such options.

However, I recently stumbled upon Loyal3, which lets you purchase shares of some of the best stocks in the world for no cost. In fact, you can purchase shares in some of your favorite dividend stocks with as little as $10 with no costs whatsoever. Even better, you can use your credit card to purchase shares directly from the companies you are investing in with no cost and earn credit card rewards in the process. Selling you shares is commission free as well, and all costs so far have been bore by the companies themselves. The companies benefit by creating a truly loyal and long-term shareholder base, and get capital to invest in their businesses. If the stock you are buying costs more than $10/share, it is not a problem, since Loyal3 allows you to buy partial shares.

With Loyal3, you can essentially buy shares in your favorite stocks with as little as $10, which democratizes the investing process. This way, even the 99% have a chance of making money from the economic success of some of America’s greatest companies. One of the downsides behind this investing scheme is that there are only a limited number of 50 or so companies which have signed up to offer shares directly to stockholders.

Using the following list, you can see that there are several prominent dividend paying stocks there. A few notable examples include McDonald's (MCD), Coca-Cola (KO), PepsiCo (PEP), Unilever (UL), Target (TGT) and Wal-Mart (WMT).

One downside is that Loyal3 is a start-up, and therefore it is not an established broker. Therefore, this opportunity could be of a limited time whose purpose is to attract customers, before initiating a monthly fee or a small commission. Of course, once you own the stock, you can always transfer securities elsewhere, and close your Loyal3 account.

While I like that you can buy stock in companies with as little as $10 per investment with a credit card, you can only do this if you set up a monthly investment plan. If you are not good at managing your personal finances, it is possible to rack up quite an amount of credit card debt from those monthly recurring transactions if you say forget about it and do not track your credit card statements. Of course, if I had the choice of having a credit card debt from shopping for clothes or buying stocks, I would choose stocks any time. Therefore, you should be careful not to overextend yourself. However, since I monitor my accounts daily, I would never buy anything that will jeopardize my personal finances. Of course, if you use your checking account, you can make a one time investment at any time in a given month. You are only limited to buying up to $2,500 per stock in a given company per month ( for both credit and checking accounts).

The other thing to look for when you buy shares is execution speed and price. You do not want to “save” $5 on a commission, only to get horrible execution price from your broker. For example, if you had $200 and a share of IBM cost $190, you should end up with one share of IBM and $10 with a commission free broker. If your execution price is $195, it is quite possible that your broker is compensating for the lack of commission by making you pay inflated prices for stocks you are buying. With Loyal3, the shares are purchased at prices that approximate the market price within a few pennies/share, which is reasonable. In addition, the shares are put in your account soon after purchase.

Actually, the website says that “You will receive the actual share price (market price) of stock bought on your behalf on the day your purchase is executed". You will receive a link to your trade confirmation shortly after the shares are purchased in the open market. Based on 10 transactions I made with the site, I can attest that prices were very similar to market prices at time of purchase confirmation.

For example, I had set up my account to automatically purchase shares of Unilever (UL)on the 7th day of the month, using my credit card. The credit card was charged on October 7, and the stock was purchased at $37.68/share. The number of shares was posted to the account within a couple of business days.

Selling is really easy as well. It took approximately 3 businesses days when selling a stock, before you can get the money in your Loyal3 account. Per the company, you will receive the actual price (market price) of shares sold through the LOYAL3 platform on your behalf on the day your sale is executed.

Another thing to look for when evaluating brokers is to make sure that they are SIPC insured. This protects the investors for an amount up to $500,000, if the broker failed. Loyal3 is SIPC insured, so you should be ok if your investment there are worth less than $500 thousand.

The company does not automatically reinvests dividends for you into more shares. This does not speed up the compounding process for you. If you earn enough in dividends however, you can easily allocate the cash to your best idea available at Loyal3.

I would also want to see them have more information about investing in general. I think that most of the people using Loyal3 would likely be new to investments, and therefore an education section there would be helpful.

I have bought shares in the following companies in this account over the past month:

McDonald's Corporation (MCD) franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. This dividend champion has consistently raised distributions for 38 years in a row. Over the past decade, it has managed to boost dividends by 28.40%/year. Currently, the stock is trading at 17.50 times earnings and yields 3.30%. Check my analysis of McDonald's for more details.

Target Corporation (TGT) operates general merchandise stores in the United States. This dividend champion has consistently raised distributions for 46 years in a row. Over the past decade, it has managed to boost dividends by 18.60%/year. Currently, the stock is trading at 15.60 times earnings and yields 2.70%. Check my analysis of Target for more details.

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. This dividend champion has consistently raised distributions for 39 years in a row. Over the past decade, the company has managed to boost dividends by 18.10%/year. Currently, the stock is trading at 15.10 times earnings and yields 2.40%. Check my analysis of Wal-Mart for more details.

Dr Pepper Snapple Group, Inc. (DPS) operates as a brand owner, manufacturer, and distributor of non-alcoholic beverages in the United States, Canada, Mexico, and the Caribbean. This dividend stock initiated dividends in 2009 and has been raising them annually ever since. Currently, the stock is trading at 15.30 times earnings and yields 3.20%. Check my analysis of Dr Pepper for more details.

The Coca-Cola Company (KO), a beverage company, engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. This dividend champion has consistently raised distributions for 51 years in a row. Over the past decade, the company as managed to boost dividends by 9.80%/year. Currently, the stock is trading at 19 times forward earnings and yields 2.80%. Check my analysis of Coca-Cola for more details.

Unilever PLC (UL) operates as a fast-moving consumer goods company in Asia, Africa, the Middle East, Turkey, Europe, and the Americas. This international dividend achiever has consistently raised distributions for 14 years in a row. Over the past decade, Unilever has managed to boost dividends by 9.90%/year. Currently, the stock is trading at 18.70 times earnings and yields 3.70%. Check my analysis of Unilever for more details.

Kellogg Company (K), together with its subsidiaries, manufactures and markets ready-to-eat cereal and convenience food products primarily in North America, Europe, Latin America, and the Asia Pacific. This dividend stock has managed to raise distributions for nine years in a row. Over the past decade, the company has managed to boost dividends by 5.60%/year. Currently, the stock is trading at 16.50 times forward earnings and yields 3%.

Overall, I am excited about Loyal3, and highly recommend it to anyone just starting out. If you already have a brokerage account, it might still make sense to acquire stock directly through Loyal3, assuming you find great companies available at attractive prices at that site, since there are no commissions.

This platform is very intuitive, easy to set up, and would satisfy the needs for most long-term dividend investors. If you need instant liquidity and instant gratification, plus streaming quotes and the ability to day-trade stocks, sell calls and puts on them, then this is not the platform for you. However, it is time in the market, not timing the market, that truly has determined the success of some of the most successful dividend investors of all time. Patience is a very lucrative virtue in the world of dividend investing for the long run.

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